Preference shares in Vietnam: the three statutory classes and how investors use them

What are preference shares in Vietnam? They are shares of a joint stock company that carry rights different from those of its ordinary shares: more votes per share, a higher or fixed annual dividend, or the right to have the company redeem the capital contributed. In return, the two classes investors actually use, dividend preference and redeemable preference shares, carry no vote. The question we are asked most often comes from funds investing in a Vietnamese company with a term sheet written for US or Singapore preferred stock: which of those terms can live in a Vietnamese preference share, and which must go into the charter or a shareholders agreement.

This entry reflects the Law on Enterprises 59/2020/QH14 as amended by Law 03/2022/QH15 and Law 76/2025/QH15, its implementing decrees and the tax laws in force as of 19 October 2026.

Preference shares in Vietnam: what the Law on Enterprises says

The Law on Enterprises sets four ground rules:

• Ordinary shares are mandatory. Every joint stock company must have ordinary shares; preference shares are optional (Clauses 1 and 2, Article 114).
• Three named classes and one open category. Preference shares are dividend preference, redeemable preference, voting preference and "other preference shares as provided in the company charter and securities law" (Points a to d, Clause 2, Article 114). Point d is where a bespoke investor class sits, but it still has to fit the statutory framework.
• One class, one set of rights. Each share of a class gives its holder equal rights, obligations and interests (Clause 4, Article 114). If two investors need different terms, the company needs two classes, for example Series A and Series B redeemable preference shares.
• Conversion runs one way. Ordinary shares cannot be converted into preference shares; preference shares may be converted into ordinary shares by a resolution of the General Meeting of Shareholders (Clause 5, Article 114). Founders therefore cannot upgrade their existing shares; the company must issue new shares of a preference class.

Who may buy dividend preference, redeemable preference and other preference shares is set by the charter or decided by the General Meeting (Clause 3, Article 114). Voting preference shares are restricted by law (Clause 1, Article 116).

Only a joint stock company has shares (Article 111). An investor in a limited liability company that wants preference shares will usually make conversion into a joint stock company (Article 202) a condition precedent.

The shareholder register must record the classes the company may offer, the number of shares sold in each class and each shareholder's holding by class (Points b, c and dd, Clause 2, Article 122). A share certificate for preference shares must also carry the terms required by Articles 116 to 118 (Point g, Clause 1, Article 121), such as the fixed dividend or the redemption conditions.

Voting preference shares: founders only, and only for three years

The law defines a voting preference share as an ordinary share with more votes than other ordinary shares; the number of votes per share is set by the charter (Clause 1, Article 116). The charter must state the duration and the total votes, or an equivalent voting ratio, for each voting preference share (Clause 1, Article 11 of Decree 47/2021/ND-CP).

Three limits make the class of little use to an incoming investor:

1. Two kinds of holder. An organisation authorised by the Government, meaning a state ownership representative agency (Clause 2, Article 11 of Decree 47/2021/ND-CP), and founding shareholders. A founding shareholder is a shareholder who owns at least one ordinary share and signs the list of founding shareholders (Clause 4, Article 4 of the Law on Enterprises) filed at incorporation (Clause 1, Article 50 of Decree 168/2025/ND-CP). Nationality is not a criterion: a foreign investor that signs the list at incorporation is a founding shareholder; a later investor never becomes one. A joint stock company converted from an LLC or a state-owned enterprise need not have founding shareholders at all (Clause 1, Article 120).
2. Three years. A founder's voting preference lasts three years from the date of the enterprise registration certificate, after which the shares become ordinary shares (Clause 1, Article 116; Clause 3, Article 11 of Decree 47/2021/ND-CP). Because the clock runs from the certificate date, in our reading voting preference shares issued to a founder after incorporation carry only the remainder of that period. For a Government-authorised holder, the charter sets the period.
3. No transfer. Except under a final court judgment or decision, or by inheritance (Clause 3, Article 116).

In practice the class helps a founding team keep control during the first three years if it raises outside money early. For longer-term control, founders rely on the charter's voting thresholds (Clauses 1 and 2, Article 148), board nomination rules, or a voting agreement in the shareholders agreement.

Dividend preference shares: must the fixed dividend be paid in a loss year?

A dividend preference share receives a dividend higher than ordinary shares or at a stable annual rate. The annual dividend consists of a fixed dividend and a bonus dividend; the fixed dividend does not depend on the company's business results. The fixed rate and the method for the bonus dividend must be stated on the share certificate (Clause 1, Article 117).

The holder also receives, on dissolution or bankruptcy, its pro rata share of residual assets after all debts and the redeemable preference shares have been paid, and otherwise has the rights of an ordinary shareholder, except the right to vote, attend the General Meeting and nominate members of the board and the supervisory board (Clauses 2 and 3, Article 117).

Different dividend tests. Dividends on preference shares are paid on the conditions applicable to each class (Clause 1, Article 135). The three tests of Clause 2, Article 135, taxes paid, reserves made and losses covered, and solvency after payment, are written for ordinary shares. Many commentaries conclude that the fixed dividend must be paid even in a loss year.

We would be more careful. Clause 5, Article 4 has always defined a dividend as profit paid on each share: the 2020 text said "net profit", and Law 76/2025/QH15 changed it to "after-tax profit" (in force from 1 July 2025). The definition ties dividends to profit, while Clause 1, Article 117 says the fixed dividend does not depend on business results. The texts do not say whether a fixed dividend may be paid in a year with no after-tax profit, current or retained. On a cautious reading, a payment with no profit behind it risks being treated as falling outside the statutory definition of a dividend. If it is treated as a breach of Article 135, Article 136 requires the shareholders to repay it; if they cannot, every board member is jointly liable for the company's debts up to the amount not repaid.

The safer design is a cumulative fixed dividend in the charter: amounts not paid roll forward, and no ordinary dividend may be paid while preference arrears remain. Nothing in the law prohibits this; in our reading it is a "condition applicable to the class" within Clause 1, Article 135.

Worked example (hypothetical). A company issues 1,000,000 dividend preference shares with a par value of VND 10,000 and a fixed dividend of 8% of par per year: VND 800 per share, VND 800 million in total. In year one it makes VND 500 million after tax. With a cumulative clause it pays VND 500 million, carries VND 300 million of arrears into year two, and pays no ordinary dividend.

Two procedural points: the General Meeting decides the annual dividend for each class (Point b, Clause 2, Article 138), and dividends must be paid in full within six months after the annual General Meeting (Clause 4, Article 135).

The company may buy back part or all of the dividend preference shares sold, whereas ordinary shares are capped at 30% (opening paragraph of Article 133). For shares other than ordinary shares, the buyback price may not be below market unless the charter or an agreement with the holder provides otherwise (Clause 2, Article 133).

Redeemable preference shares: how redemption works

A redeemable preference share is one the company redeems, returning the capital contributed, at the holder's request or on the conditions stated on the share certificate and in the charter (Clause 1, Article 118). The holder has the rights of an ordinary shareholder except voting, attending the General Meeting and nominating board and supervisory board members; the exceptions are the vote on conversion (Clause 5, Article 114) and the class vote under Clause 6, Article 148 (Clauses 2 and 3, Article 118).

This is the closest Vietnamese equivalent of redeemable preferred stock or a put option against the company. The trigger can be a date (after five years), an event (no IPO by 2030) or the holder's demand.

What changed in 2025. Until 1 July 2025, Clause 5, Article 112 listed only three ways for a joint stock company to reduce charter capital: a pro rata return of capital, a buyback under Articles 132 and 133, and shares not paid for. Redemption had no clear basis. Law 76/2025/QH15 added Point d: the company returns capital to holders of redeemable preference shares on request or on the conditions stated on the certificate. Material written before mid-2025 does not reflect this.

When registering the reduction, the company must undertake that it will still pay its debts and other liabilities in full (Clause 4, Article 44 of Decree 168/2025/ND-CP). For the filing itself, see reducing charter capital in Vietnam.

Three points the law leaves open, which the charter and certificate should settle:

• The 30% cap and the solvency test. The cap in Article 133 and the payment condition in Clause 1, Article 134 are written for buybacks under Articles 132 and 133. In LexData's reading, redemption under Article 118 is not subject to the 30% cap, but the solvency undertaking on registration still applies.
• Redemption price. Charter capital is the total par value of shares sold (Clause 1, Article 112), so the charter capital reduction equals par value only. An investor who paid VND 30,000 for a share with a par value of VND 10,000 should state whether it redeems at VND 30,000, at cost plus a return, or at market value. The law sets no floor or ceiling.
• A company that cannot pay. The law is silent on late redemption. Provide for the consequence: default interest, a right to convert into ordinary shares, or a founder buy-back obligation in the shareholders agreement.

Preference shares in Vietnam versus US-style preferred stock

A typical fund term sheet treats "preferred stock" as a package: liquidation preference, preferred dividend, conversion into common, anti-dilution, as-converted voting, board seats and protective provisions. Vietnamese law does not offer that package. Each right has to be placed in the right instrument.

Three points are easy to miss when converting a term sheet into Vietnamese documents:

• The loss of voting rights is real. US preferred stock usually votes with common on an as-converted basis. In Vietnam, an investor holding only dividend or redeemable preference shares does not attend the General Meeting or nominate board members, and because the 5% threshold in Clause 2, Article 115 is measured on ordinary shares, it cannot requisition a meeting either. Deals therefore often split the investment between ordinary shares, which carry votes and nomination rights under Clause 5, Article 115, and preference shares.
• A charter liquidation preference may run into Clause 6, Article 208. That clause requires residual assets to be split "in proportion to the capital contribution or shares owned". In LexData's reading, a charter-defined class under Point d, Clause 2, Article 114 that is paid first on dissolution is arguable, but there is no guidance. Most liquidation preferences bite on a sale of shares rather than on dissolution; then the money flows from the buyer to the shareholders directly, and a proceeds-sharing clause in the shareholders agreement is easier to enforce.
• Conversion is not at the holder's option. Clause 5, Article 114 requires a General Meeting resolution. In our reading it falls under "classes of shares and the number of shares of each class", so it needs at least 65% of the votes of shareholders attending and voting at the meeting (Point a, Clause 1, Article 148), while redeemable preference holders vote only on that conversion itself.

The charter binds the company and every shareholder; a shareholders agreement binds only its signatories. Rights the company itself must honour (dividends, redemption, class votes) belong in the charter and on the certificate; undertakings between shareholders (voting, proceeds sharing, buy-back on breach) belong in the shareholders agreement. See the company charter in Vietnam.

Issuing preference shares in Vietnam: approvals, filings and foreign investors

Approval. The General Meeting decides the classes of shares and the number of shares of each class the company may offer (Point b, Clause 2, Article 138), by at least 65% of votes cast by shareholders attending and voting, with the exact threshold set by the charter (Point a, Clause 1, Article 148, as amended by Law 03/2022/QH15). Creating a new class usually also means amending the charter to define its rights. If an existing preference class is adversely affected, a 75% class vote is also needed (Clause 6, Article 148).

Offering. A non-public company makes a private placement when it does not use the mass media and offers to fewer than 100 investors, not counting professional securities investors (Clause 1, Article 125). Existing shareholders exercise pre-emptive rights first, except in a merger or consolidation (Point b, Clause 2, Article 125), so to place a whole tranche with one investor the existing shareholders must waive. See private placement of shares in Vietnam. Public companies offer shares under securities law (Clause 3, Article 123).

Filing. The company registers the charter capital change within 10 days after the offering closes (Clause 4, Article 123), with the General Meeting resolution and evidence that the shares have been paid for (Points b and d, Clause 1, Article 44 of Decree 168/2025/ND-CP). Share classes held by each shareholder appear in the shareholder register kept by the company (Article 122), not on the enterprise registration certificate.

Foreign investors. Three specific points:

• A foreign investor buying shares in a private placement must complete the share purchase procedure under the Investment Law (Clause 3, Article 125). Registration is required before the shareholder change in the cases listed in Clause 3, Article 21 of Investment Law 143/2025/QH15, for example where foreign ownership rises from 50% or less to more than 50% of charter capital, which includes the par value of every class (Clause 1, Article 112); in LexData's reading, non-voting preference shares count. See foreign investors buying shares in Vietnam.
• A joint stock company other than a listed or trading-registered company must notify the business registration office no later than three working days after it has, or there is a change in, information on the number and class of shares held by foreign shareholders (Clause 3, Article 176, as amended by Law 76/2025/QH15).
• A beneficial owner is an individual holding 25% or more of charter capital or 25% or more of the voting shares (Clause 1, Article 17 of Decree 168/2025/ND-CP, as amended by Article 3 of Decree 296/2026/ND-CP). An individual behind a large non-voting preference investment may still have to be declared. See beneficial owners in Vietnam.

When the issue is part of an M&A transaction, the investment agreement, the amended charter and the shareholders agreement are usually signed together. See M&A in Vietnam and share purchase agreements in Vietnam.

Checklist before issuing preference shares in Vietnam

1. Is the target a joint stock company? If it is an LLC, convert first (Article 202).
2. Each distinct bundle of rights is a separate class (Clause 4, Article 114). Put into the charter and on the certificate the fixed dividend, the cumulative mechanism, redemption conditions and price, conversion terms, and what counts as an "adverse change" needing a 75% class vote.
3. Decide how many ordinary shares the investor needs for votes and board nomination rights.
4. Put into the shareholders agreement what cannot bind the company: voting undertakings for conversion, proceeds sharing on a sale, founder buy-back obligations.
5. Procedure: General Meeting resolution, waiver of pre-emptive rights, registration of the capital increase within 10 days, Investment Law registration and beneficial ownership declarations where relevant.

Tax on preference dividends and redemption in Vietnam

Individual shareholders. Dividends are investment income (Point b, Clause 3, Article 3 of Personal Income Tax Law 109/2025/QH15, in force from 1 July 2026). Residents pay 5% on taxable income for each payment (Clauses 1 and 2, Article 12; Clause 1, Article 52 of Decree 253/2026/ND-CP); non-residents pay 5% on the gross investment income from Vietnam (Article 22). The law does not distinguish ordinary from preference dividends: the VND 800 million fixed dividend in the example above, paid to resident individuals, bears VND 40 million of tax.

Vietnamese corporate shareholders. Income distributed from capital contributions and share purchases in domestic enterprises, after the distributing company has paid corporate income tax, is exempt (Clause 7, Article 4 of Corporate Income Tax Law 67/2025/QH15).

The issuing company. Dividends are not deductible for corporate income tax, except dividends on shares classified as liabilities (Clause 19, Article 10 of Decree 320/2025/ND-CP). Preference shares with a mandatory redemption feature may be classified as liabilities under the accounting regime; have the company's accountants confirm the classification of each class before issue.

Redemption proceeds. The texts do not say how an individual's gain on redemption, above the purchase price, is taxed: as a capital transfer, a securities transfer or investment income. Seek a ruling or allocate the tax treatment and the tax burden expressly in the investment agreement.

LexData's capital contribution and share purchase service for foreign investors can structure the preference class and draft the amended charter, the issuance resolution and the shareholders agreement as one set.